July 15 (Bloomberg) -- Mexico City's government will hold a non-binding referendum this month on President Felipe Calderon's plan to give the state oil monopoly more leeway to hire private companies, possibly giving ammunition to opponents of the bill.

The local government, controlled by the opposition Party of the Democratic Revolution, or PRD, will ask residents two questions: if they agree with the proposal and whether they approve of private participation in the oil industry, Mexico City deputy secretary Juan Jose Ochoa said in a statement today.

The July 27 referendum isn't endorsed by the federal government, and won't have any direct impact on the bill being debated in the Senate. Still, a lopsided vote against loosening restrictions on state-owned Petroleos Mexicanos may fuel more protests by opponents of the bill, said Jose Antonio Crespo, an analyst at the Center for Economic Research and Teaching in Mexico City.

``This will be another element that will allow the PRD to justify any demonstrations it leads against the reform,'' Crespo said. ``It will be something that generates an important political cost for the government.''

Crespo said turnout would probably be low, and that the majority of voters will be PRD supporters looking to strike a symbolic blow. The PRD will organize similar votes on the energy bill in all 31 states on July 27, August 10 and August 27, according to the party's Web site.

The government says bringing private companies into Mexico's oil industry would free up cash that Petroleos Mexicanos, or Pemex, could use to explore for oil to halt declining output. It proposes contracts allowing private companies to explore for oil and own a stake in refineries.

Mexico's Constitution

Opponents, including former presidential candidate Andres Manuel Lopez Obrador, say the bill will transfer Mexico's energy riches to local business elites and foreigners, in violation of a constitutional clause that has reserved oil to the government for 70 years. They say Pemex can be fixed without private involvement in the industry.

The PRD helped force Congress to delay a vote on the plan in April by shutting down the Congress for two weeks in protest. Lawmakers then announced a two-month period of debate on the initiative in the Senate, which is scheduled to end next week.

Calderon is having difficulty mustering support for the bill. The other main opposition party, known as the PRI, has become more critical of private participation in the activities of Petroleos Mexicanos since the debates started.

Despite that resistance, Gray Newman, chief Latin America economist at Morgan Stanley in New York, forecasts that Congress will approve an energy bill by September.

`Surprise'

``The administration is likely to surprise the market with a more substantial reform sooner than most expect,'' Newman said.

The ballot will consist of two questions that were composed by a group of professors from institutions including the National Autonomous University of Mexico.

``Currently the production, transportation, distribution, supply and refining of hydrocarbons are exclusive activities of the government,'' one of the questions for the referendum reads. ``Do you agree with allowing private companies to participate in these activities?''

Opponents of the bill are likely to win the vote in Mexico City because the PRD and Lopez Obrador will mobilize supporters, while those who back Calderon's plan have less incentive to vote, Crespo said. Mexico City, formerly led by Lopez Obrador, is traditionally a bastion of the PRD.

``I don't know how truly representative a Mexico City referendum will be given the ideological orientation,'' said Armand Peschard-Sverdrup, senior associate at the Center for Strategic and International Studies in Washington. ``They'll most likely get the result that they're seeking.''

To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9@bloomberg.net

Last Updated: July 15, 2008 19:27 EDT